Mutual Funds

Some Common Mutual Fund Investment Myths

Are you thinking of investing in mutual funds? If yes, then don't miss reading this article. Here, we have discussed about some misconceptions that most people lacking experience of dealing with these funds possess. Knowing these myths will help you in managing your investments in a better way and earn more money through them.

Myth 1: They are closed-end funds.

This statement is completely wrong. It's true that there are people who mistakenly refer to mutual funds as closed-end funds; however, the two terms are not synonymous. A closed-end fund like ETF is a type of Investment Company.

Myth 2: When dealing with these funds, a short-term capital gains distribution might get counterbalanced with loss of capital. This loss can be both long term and short-term.

The reality is absolutely different. A short term capital gains distribution can never be counterbalanced with any kind of capital loss. In addition, it also does not hold any economic value for the mutual fund share holders.

Myth 3: They are costlier than ETFs.

They can surely be costlier than ETFs, but not always. There are many mutual funds that are cheaper than ETFs. Your financial adviser is the best person to explain the reasons behind high price of a mutual fund or ETF.

Myth 4: They are only meant for people looking to make long-term investments.

If someone tells you that long-term investments offer greater benefits, he is right. However, that does not mean that you cannot invest in these funds as a short-term investor. Consult your financial adviser and he will surely be able to inform you about several short-term schemes that will allow you to get return on your investments within just a few weeks or months.

Myth 5: You will not be able to invest if you don't have a big amount ready.

This is probably the most long-standing and common myth that stops people from trying their hands on these funds. The majority of the modern-day funds allow both low and high investments. You will be happy to know that you will be allowed to invest even if you have only Rs. 1000 in your pocket. There are also some funds that allow investment of Rs. 500. However, for people planning to make big investments, there's no limit.

Myth 6: They are equity products.

This is also an extremely common myth. The above statement is partially true; let us explain why. These funds invest in different instruments, which may include everything from debt to equity. Thus, often people mistakenly categorize mutual funds as equity products.

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